Should You Buy Term Life Insurance?

Term life insurance is an inexpensive way to provide guaranteed death protection for a stated period of time (term), usually 10, 20 or 30 years. Aiming to provide temporary life insurance protection for a fairly low initial premium, term life insurance can cover short-term needs on a limited budget and provides insurance coverage to the beneficiaries when the insured is deceased.

Benefits of Term Life Insurance

1. Lower policies
Term life insurance policies are considerably lower than whole life and universal life insurance policies. I pay $420 per year for my term insurance policy, while the premium for a permanent life policy with death benefit of $330,000 for a 40-year-old, non-smoking female is $3,600 per year. Although the premium increases as I grow older, it can never reach $3,600 per year over the term of 10 years.

2. Investing benefits
By paying lower premium, I can invest the extra money I would pay to a permanent insurance policy and earn a good return on investment. Typically, insurance companies invest your money, but rather conservatively. So, if you are a savvy investor or you have an understanding of the market mechanisms, you can invest your money yourself, while having an affordable life insurance policy.

3. Payout benefits
Only 1 percent of all term life insurance policies pay a benefit. This happens because most term life insurance policyholders are young and healthy individuals that are interested in providing financial protection to their families. Low payouts lead to low insurance premiums, justifying the affordability of term life insurance.

4. Cash benefits
Unlike permanent life policies, term life insurance offers a one-time benefit because it does not guarantee a cash value on its policies. Typically, the cash value is associated with permanent insurance policies, allowing policyholders to withdraw the money and cover financial needs.

5. Renewable policies
Term life insurance allows policyholders to renew their policy by continuing coverage for a specific period beyond the original coverage period. When a policy is renewed, the premium is adjusted according to the age of the insured at that time.

Term life insurance has adjustable premiums, which means that the insurer can lower or raise premiums based on expected changes in age, assets and the likelihood of death. However, premiums never exceed the maximum premiums stated in the policy. Also, term life insurance allows policyholders to exchange a term life insurance for any type of permanent life insurance at any time provided that the policy is in force.

Overall, a term life insurance policy can cover your short-term needs. Parents buy a term life insurance policy to cover their children's college and make sure that full tuition is paid in case the parents are deceased. Similarly, homeowners buy a term life insurance policy that matches the length of their mortgage.

Sources:
http://www.wisegeek.com/what-is-term-life-insurance.htm
http://www.jdpower.com/healthcare/articles/The-Benefits-Of-Term-Life-Insurance/